Did China's Foreign Exchange Policy Hinder the US Recovery from the Global Financial Crisis?

Abstract

...substantially undervalued...” - Tim Geithner, US Treasury, January 2011 “...China manipulates its currency...” - Charles Schumer (D), February 2011 “...huge competitive disadvantage...” - President Obama, February 2010 The quotes above convey the perception that China’s foreign exchange policy has had a harmful impact on the US economy. This paper examines whether China’s foreign exchange policy harmed the US economy wit h particular reference to its GDP and unemployment levels since the onset of the GF C. We find, contrary to the commonly held belief, that China’s foreign exchange policy has in fact helped the US recover from the GFC, albeit at the cost of strategi c dependency on Chinese demand for its government debt.